Archive for August, 2010

Two tales of tobacco sales

Thursday, August 5th, 2010

Get 'em while they're cheap

Get 'em while they're cheap

1. Like a smoker trying to quit, Japan’s tobacco companies are having a tough time sticking to one plan of action following the Finance Ministry’s decision to raise the tobacco tax ¥3.5 per cigarette starting Oct. 1. In March, British American Tobacco Japan, No. 3 in sales after JT and Philip Morris, announced it would raise prices in conjunction with the tax hike, and then almost immediately withdrew its application from the FM, saying it needed to study the changing market environment further. Philip Morris did the same thing, only in their case they had already gained approval from the FM for a price increase.

Now BATJ has reapplied. On July 26, it submitted a new request to increase prices on all of its 62 brands on Oct. 1 from ¥110 to ¥130 per pack, including the ¥70 tax. A pack of Kools, for instance, which now costs ¥320, will go up to ¥440. Apparently, BATJ studied the situation and decided that instead of biting the bullet and trying to absorb the estimated 20 percent drop in sales that experts say will occur when the tax hike goes into effect, it will try to cover the loss with a price hike; except that they aren’t putting it in such clear, obvious terms.

According to media that have reported the price increase, BATJ said that the estimated loss in sales from the tax hike will mean higher per-unit production costs and so they have boosted the price to make up for it. The way I understand it, that means BATJ isn’t increasing the price in order to cover the loss of revenue caused by all those smokers who will finally decide to quit, but rather to pass on production costs, which, I suppose, sounds more acceptable. Whatever. The cigarettes will still be considerably more expensive.

2. In 2008, the Tobacco Institute of Japan introduced the TASPO card system to help prevent minors from buying cigarettes from vending machines. Smokers had to apply for and receive the card, which was needed to operate cigarette vending machines. However, for cigarette merchants the system is expensive and inconvenient, and a lot of smokers have just given up and buy their cigarettes over the counter.

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